Irvine, California-based Diedrich Coffee, roaster, retailer and wholesaler of specialty grade coffee, has reported results from operations for its second fiscal quarter ended 12 December 2001.
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Diedrich is continuing its strategy of minimizing overhead and capital expenditures, while leveraging its capability to roast and sell specialty grade coffees to both its franchised retail coffee outlets and traditional wholesale channels. The company is also maintaining its focus on improving profitability by reducing debt and eliminating unprofitable retail stores and wholesale accounts.
CEO J. Michael Jenkins commented on the quarter: “We are pleased to report solid earnings per share and consistently improving Operating EBITDA, despite continued comparable store sales challenges that reflect a difficult retail environment.”
Profitability and Operating EBITDA
The company reported net income of US$1.3m for the Q2 compared to net income of US$164,000 for the same quarter a year ago. Earnings per share increased to US$0.26 versus US$0.05 per share for the prior year period. This improvement resulted primarily from reductions in G&A expenses, bad debt expense, and to a lesser degree, reductions in depreciation and amortization and interest expense. Operating EBITDA (earnings before interest, taxes, depreciation and amortization, and adding back any provisions for asset impairment or restructuring costs) improved 27.1% to US$2m for the quarter versus US$1.6m for the prior year period.
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By GlobalDataCommenting on the financial performance for the quarter, Diedrich Coffee’s CFO Matthew McGuinness observed: “Due to the holidays, the second fiscal quarter ending in December is the company’s highest revenue and most profitable quarter. This seasonal effect is primarily the result of significant increases in mall traffic during November and December. Our goal is to strengthen our franchise businesses and broaden our wholesale distribution to reduce the overall impact of seasonality and to generally improve third and fourth quarter results. However, at present, we anticipate no additional net income in the third and fourth quarter of the current fiscal year.”
For the Q2 the company reported net income of US$790,000, compared to a net loss of US$949,000 for the same period a year ago. Year to date earnings per share increased to US$0.15 versus a loss of US$0.30 per share for the prior year period. Operating EBITDA improved 23.7% to US$2.3m for the 24 weeks versus US$1.87m for the prior year period.
Revenue
Total revenue for the Q2 was US$16m, a 17.6% decrease compared to revenue of US$19.4m for the prior year period. This decrease reflected a 24.4% decline in retail sales, a 9.9% decrease in wholesale and other revenue and flat franchise revenue compared to a year ago.
Retail sales from company operated retail units for the quarter declined by US$2.8m, or 24.4% compared to the prior year period. The majority of this decrease was the result of planned sales or closings of under performing company operated locations as part of the company’s previously announced business strategy. The recent sale of twelve Coffee Plantation brand locations in Arizona accounted for a significant portion of this decrease. The balance of the reduction was due to a weighted average 5.8% decline in comparable store sales for company operated retail units across all three brands.
Wholesale revenue for the quarter decreased US$0.6m or 9.9% from the prior year period. Most of the decrease is attributable to a decline in sales of roasted coffee to Gloria Jean’s franchisees, which are recorded as wholesale revenue. The Gloria Jean’s system purchased less roasted coffee than a year ago primarily due to 10% fewer domestic franchise units, and lower comparable store sales. During this quarter, wholesale revenues included the sale of holiday gift baskets to franchisees. Year ago, these sales primarily fell into the first quarter. Franchise revenue for the second fiscal quarter was US$1.8m, essentially unchanged from the prior year period.
For the Q2, total revenue was US$30.1m, a 17.1% decrease compared to revenue of US$36.3m for the prior year period. This decrease reflected a 17.4% decline in retail sales, an 18.8% decline in wholesale and other revenue, and a 7.2% decline in franchise revenue compared to a year ago. Retail sales for the 24 week period declined for primarily the reasons noted above regarding the quarterly decrease. Wholesale revenue for the 24 weeks declined from the prior year period due to the decision to discontinue the distribution of lower-margin non-coffee products to franchisees and to the decrease in bean sales cited above. Franchise revenue for the 24-week period declined compared to the prior year period as a result of fewer initial franchise fees recorded.
Comparable Store Sales
System-wide comparable store sales at Diedrich Coffee brand coffeehouses open at least one year declined 5.2% and 4.3% for the 12 and 24 weeks ended 12 December respectively as compared with the prior year.
Comparable store sales at the company’s Coffee People coffeehouses declined 3.3% and 5.0% for the 12 and 24 weeks ended 12 December respectively as compared with the prior year.
System-wide comparable store sales at Gloria Jean’s units declined 7.1% and 5.4% for the 12 and 24 weeks ended 12 December respectively as compared with the prior year.
Recent Developments
Consistent with its ongoing efforts to best allocate resources for profitable growth, Diedrich Coffee restructured several administrative and other support functions in January 2002, including the elimination of 15 positions. As a result of these actions and other cost saving measures taken since the beginning of the fiscal year, the company projects annualized overhead savings of approximately US$1.3m. The company anticipates recording a Q3 charge of approximately US$300,000 to US$400,000 related to these actions.
